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Attorney General Lockyer and Sacramento District Attorney Scully Sue Toyota Dealers over Scheme to Fix Prices of New Vehicles

Four Sacramento-Area Dealers Agreed to Not Advertise Prices

Tuesday, December 10, 2002

Contact: (415) 703-5837, agpressoffice@doj.ca.gov

(SACRAMENTO) – Attorney General Bill Lockyer today filed suit against the four largest Sacramento-area Toyota dealerships, alleging they violated state antitrust and unfair competition laws by agreeing to not advertise the prices of new vehicles.

The suit, filed jointly with the Sacramento County District Attorney's Office, alleges the defendants formed an unlawful trust that increased their profit margin, but harmed consumers by fixing prices and suppressing competition.

"In these tough economic times, working families face difficult enough challenges without being denied the ability to buy competitively-priced vehicles," said Lockyer. "This lawsuit seeks to help local consumers by forcing these dealers to honor the long, healthy tradition of competition in new car sales."

The defendants in the action include John L. Sullivan's Roseville Toyota, Folsom Lake Toyota, Florin Road Toyota and Maita's Toyota of Sacramento.

Through Jan. 2, 1999, according to the suit, the four dealerships advertised the prices for new vehicles in local newspapers and on local radio and television. Beginning Jan. 3, 1999, the defendants agreed to cease such advertising, the complaint alleges. "Defendants each stopped advertising the prices of new Toyota vehicles within a week of each other," the suit states, "and have continued not to advertise the price of new Toyotas since then." The dealerships continue to honor the alleged agreement, according to the complaint, even though the Sacramento County District Attorney's Office notified the defendants in January 2000 they were violating antitrust laws. Sales personnel routinely have told inquiring customers about the agreement, the complaint says.

The suit alleges the defendants' unlawful actions have had the effect of "fixing and stabilizing prices, increasing the defendants' average profit per vehicle, reducing, suppressing and restraining competition generally in the sales of new Toyota vehicles, eliminating or diminishing effective competition for new Toyota sales, and depriving customers of their right to obtain such (vehicles) at competitively determined prices."

In general, the complaint states, the defendants have deprived "the economy, the general public, Sacramento County and California of the benefits which accrue from healthy competition."

In markets similar to the Sacramento region, studies involving other consumer products have shown a correlation between elimination of price advertising and increased prices. Additionally, the auto industry's own studies have found price is the second-most important factor in consumers' decisions about new-vehicle purchases, ranking just behind make and model.

Toyota dealerships in other California metropolitan areas advertise the prices of new vehicles. Additionally, the four defendant-dealerships own franchises for other makes of vehicles, and advertise the prices of new vehicles sold at those dealerships. For example, John L. Sullivan Chevrolet advertises its new-vehicle prices, while Sullivan's Roseville Toyota does not.

The suit also alleges Roseville Toyota engaged in false or misleading advertising by telling consumers they could buy new vehicles for less at that dealership. The truth of such an advertising claim is called into question, the complaint notes, by the fact Roseville Toyota's average profit per new vehicle is higher than any other dealer's in the Sacramento-area market.

The complaint asks the court to declare the no-advertising agreement a violation of the state's antitrust law, and to permanently ban the defendants from engaging in the alleged unlawful acts. In addition, the suit asks the court to impose civil penalties of $2,500 for each violation of unfair competition and false advertising statutes.